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When it comes to aging myths, green unaffordability is particularly geriatric.
The perceived price of sustainability-minded retrofits and renovations has long stood as a stumbling block for building owners who might otherwise pursue them. Cost is an excuse that those of us in commercial real estate have heard a lot — and one that I fully expect will make a noisy resurgence this year, as my hometown of New York City begins rolling out the Climate Mobilization Act in earnest.
Under the act, all midsize and large buildings (i.e., those over 25,000 square feet) will be required to undergo a sustainability assessment and post energy “grades” by all public entryways. Assessment and public scrutiny won’t be the worst of it, however. Starting in 2024, owners will face steep fines if they fail to achieve specific sustainability benchmarks. The legislation will place pressure on New York’s building owners, for sure — and inevitably resuscitate the old belief that going green means spending green.
And it’s true, conducting retrofits takes money; however, it doesn’t demand nearly as much as most people believe. Ample evidence demonstrates that green construction is affordable — or, at the very least, as affordable as conventional construction.
Sustainable Construction Is (Not) Expensive
One global study conducted by the World Business Council for Sustainable Development found that critical players in the real estate and construction sectors frequently and drastically misjudge the costs of green building. The survey’s respondents estimated that building sustainably would be 17% more expensive than conventional construction. Their expectations were more than triple the actual cost difference, which researchers found to be 2%.
Perhaps more problematically, building professionals worldwide also believed that buildings produced 19% of the world’s greenhouse gases, which is significantly lower than the actual figure, 40%. Recent statistics indicate the situation is even worse for modern New Yorkers. According to city council data published by Curbed, buildings produce an incredible 71% of New York’s greenhouse gas emissions.
These are troubling statistics that illustrate a harsh truth: Misaligned expectations for sustainable building expenses could be keeping building owners from looking into retrofits that could drastically reduce their greenhouse gas emissions and improve their energy efficiency.
As Bruno Lafont, chairman and CEO of French building materials manufacturer Lafarge, pointed out in Contractor Magazine, 80% to 85% of a building’s total energy consumption and carbon dioxide emissions are due to occupancy: the need for heating, cooling, ventilation and hot water. Optimizing even one of those factors could have an enormously beneficial impact on the building’s function, sustainability and profitability.
Unlocking The Profitability Of Green Retrofits
Green unaffordability myths aside, the idea that there isn’t a financial case for building sustainability is downright wrong. Green retrofits can and often do have drastic economic benefits for building owners.
In 2012, a study published in the Journal of Sustainable Real Estate reported exactly this, spotlighting the commercial real estate company Jones Lang LaSalle as an example. The authors noted that “of 115 office properties in its portfolio for which the energy efficiency was improved in 2006, the average realized savings for 2007 and 2008 were $2.24 million and $3 million, respectively.”
As an entrepreneur in the commercial real estate sector, I’ve seen the business case for sustainability firsthand. Several years ago, I conducted green retrofits at my residential building. Today, the building relies on numerous sustainable features, most notably, the highest array of solar panels in New York City. All of these features have shown incredible returns: Since 2015, the building has reduced its energy consumption by 15% and achieved roughly $120,000 in savings every year.
The shift into green building isn’t a financial burden; it’s an increasingly obvious opportunity for savings and growth. According to a 2013 Smart Market report, roughly 42% of surveyed corporate firms viewed sustainability as “a business opportunity or as transformational” — a 5% leap from the 37% who claimed the same the year before.
Sustainability In NYC: An Imperative, But Also An Opportunity
So, yes, players in New York’s commercial real estate sector will need to shoulder more responsibility to limit the city’s greenhouse gas emissions as the Climate Mobilization Act shifts into full force. The task will require time, effort and resources from all those involved — but probably not as much as most currently think.
Moreover, New York’s CRE professionals won’t be charting the city’s path toward sustainability alone. There are structures already in place to provide financial and logistical support to building owners as they conduct green retrofits. Take the NYC Retrofit Accelerator program as an example. This initiative offers advisory services and customized technical assistance to help accelerate the retrofit process for owners of buildings that exceed 50,000 square feet. The accelerator program has two primary goals: to help the owners of privately owned businesses lower their utility costs, and to improve NYC property values by providing support as local owners seek energy and water upgrades.
Other support frameworks exist. New York City offers tax abatements for buildings with green roofs and solar panels, and the New York State Energy Research and Development Authority (NYSERDA) maintains a host of programs to support all varieties of commercial buildings. If a building owner lacks the immediate capital to make green retrofits, they can also seek out alternative financing through the New York City Energy Efficiency Corporation.
What does all of this tell us? The Climate Mobilization Act might be intimidating for New York’s CRE operators now, but meeting its efficiency requirement won’t be nearly as expensive as the green unaffordability myth might suggest. Moreover, because property owners will likely experience high energy savings, their investments will be well-oriented to provide returns — for the owners, and for the city itself.